Fed raises rates, Powell talks future plans

Ruth Drake |Thursday, June 14, 2018

Fed raises rates, Powell talks future plans

The federal funds target rate, which is now between 1.75 and 2 percent, is the highest it's been in almost a decade, indicating that the nation's central bank has confidence the economy will continue to expand.

That shift came as a single FOMC member shifted his or her forecast for this year and next, breaking a virtual tie in the projections released in March.

Interest rate hikes will hit consumers in their wallets.

Greg McBride, chief financial analyst for the interest rate website Bankrate.com, said that could "squeeze" families if wage growth remains sluggish. The step was needed, the Fed said, to be sure rates stay within the intended boundaries.

Rates for savers have tended to lag the Fed's hikes. The statement the Fed issued today after its latest policy meeting ended suggested that he does. Total rate hikes projected for 2018 is up to four from three previously.

The Federal Reserve raised its key rate by 25 basis points and signaled two more rate hikes this year. "The trajectory of United States inflation or the broader United States economy would likely need to change materially for the FOMC to deviate from that path", said Aaron Anderson, senior vice president of research at Fisher Investments.

He acknowledged that the Fed is hearing concerns from some business executives about the Trump administration's combative trade policies, including anecdotal cases in which companies have postponed hiring or major purchases.

But, he added, "We really don't see it in the numbers".

Trump's imposition of tariffs on steel and aluminum imports has enraged US allies. Those moves have inflated steel and aluminum costs.

"The economy is doing very well", Powell said at a news conference after the meeting.

Fed officials also said they expect to raise rates twice more this year, faster than previously forecast. For 2020, the Fed foresees a median of 3.4 percent.

Estimates of longer-run interest rates were unchanged and seen reaching as high as 3.4% in 2020 before dropping to 2.9% in the longer run. While the national economy appears to be on solid ground for 2018, the Fed must now consider how growing global trade disputes could slow USA growth.

In its updated forecasts, the Fed envisions stronger growth this year - 2.8 per cent, up from the 2.7 per cent it predicted in March.

The Fed's twin mandate is to bolster employment while controlling inflation, and in the current environment more rate rises appear inevitable.

On inflation, policy makers forecast a slight overshoot of their target starting in 2018 at 2.1 per cent, and running through 2019 and 2020, compared with a 2020 overshoot in March's projections. Consumer and business spending is powering the economy, in part a result of the tax cut President Donald Trump pushed through Congress late a year ago. At the same time, they project the unemployment rate to fall to 3.6 percent this year, down from earlier projections of 3.8 percent.

Beginning in 2008 in the midst of the financial crisis, the Fed kept its key rate unchanged at a record low near zero for seven years.

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